This post is long overdue, 9 months after my L-1 exam and deep into the L-2 preparation.

In this long
post, I outline what I did to clear L-1, what you should take ahead from L-1 and how to tackle this exam
that forms the foundation to achieve the prestigious Three Letter Designation.

I believe in tackling things by breaking them into pieces. I first outline each of the 10 subjects, the
important stuff and what to do. Later, I give the view by combining the subjects, what to expect on the
exam and my understanding of the paper.

Ethics – This subject forms 15% of the weightage & seems a very boring subject but it’s critical
subject for the following reasons.

1. The heavy weightage (More on that later).

2. It judges candidates who have borderline scores in the other subjects.
3. It’s recurrence in L-2 and L-3 and the importance given to the Conduct of Students &
Charterholders.

It’s good to practise a lot of problems in this section. Only then you understand the problems where
the answers are closely related. GIPS are another important area, but Ethics is what I saw more than
GIPS in the Exam. This section is always a grey area, so it’s good to Begin Early.

Quant – This section weighs 12% of the paper & introduces you to the concepts of Time Value of
Money, Probability, Probability Distribution, Sampling and Hypothesis testing.

TVM & DCF are critical, it’s almost everywhere in Finance. TVM turns up thrice in L-1. NPV & IRR will be
tested many times in the entire paper. TVM is at a basic level in L-1; its various forms turn up in L-2.
It’s good not only for CFA exam but also as a potential analyst to think in terms of TVM.

‘Measures of Central Tendency’ is an easy chapter. Skewness & Kurtosis are an important part and
expect a few questions on them for sure. Sampling & Technical Analysis is easy.

Probability & distributions can get a bit complicated, especially for those without a Maths background.
An understanding of the formulas will help nail these chapters, because the sums are generally
straightforward.

Hypothesis testing is the most important part of Quant. It turns up in L-2 again, so know it well. This
was my grey area and I think not knowing this Chapter got me the 50-70% range on the exam. I regret
not knowing this well for my L-2 preparation.

Economics – This section is potentially scoring and is easy.

From SS5, know the graphs of each type of market well and their features. I needed a lot of readings to
memorize the stuff in the graphs, so give it time. If I could understand and memorize the graphs,
anyone else can. Also, elasticity of demand is important.

SS6 is relatively easier. Watch out because this section has data that might conflict with what you read
in the papers. Always remember, CFAI is correct. If in doubt, always follow what the CFAI Book says.

FRA – This is a heavyweight with 20% weightage. Performing poorly in this section drastically reduces
your chances of passing the exam.

SS7 forms the basics of this section and shouldn’t be too difficult to master. IFRS vs. GAAP is a
repeated area of testing. Role of different bodies like IASB, SEC, IOSCO are another tested area.

SS8 introduces you to Income Statement, Balance Sheet, Cash Flows and ratios. EPS calculations
(diluted v/s basic), Asset depreciation, revenue and cost recognition (Acceleration & Delaying) are
important areas. Understanding how the CFS works, differences in IFRS & GAAP in the formation of the
3 statements will be tested.

Ratios are very important. Enough Said. DuPont Analysis (3 & 5 term) appeared atleast twice on my
exam.

SS9 is the most important part of the FRA syllabus. 4 big and extensive chapters appear
heavily on the exam. Poor knowledge of this section leads to your downfall, because
almost everything in this SS will be tested.

FIFO v/s LIFO – This is tested heavily. Questions on Which method saves tax under
inflationary/deflationary environment or increasing/decreasing inventory, LIFO reserve & which method
is better for the IS or BS will surely be there on the exam.

Long Lived Assets – This is an important area because of its relation to the previous BS chapter in SS8.
Almost everything on this chapter will be tested.

Income Taxes – This chapter is daunting due to the heavy terminology. I could never master this
section, but I got a lot of questions on this right in the exam because I got the big picture view correct
to eliminate atleast one answer. I suggest you focus on the big picture – When is a DTA/DTL created,
effect of Inventory & Depreciation on Taxation (Notice the links to the previous chapters).

Long Term liabilities – This chapter is not difficult, but needs a couple of readings to nail the concepts.
The leasing section is really important – different types of leases & their effect on Ratios, Types of Debt
(Hybrid & Convertible).

SS10 is relatively easier to SS9. The fraud triangle, window dressing of statements & convergence is
important stuff. Convergence is important stuff, don’t ignore that. It’s easy.

Corporate Finance – You can hit a jackpot on this section. If the CFA marksheet displayed a 90-100%
range, over half of the students who passed would be in this section. I highlight the relatively
tougher & important stuff.

• Beta of project/asset
• Treatment of floatation costs
• Working Capital Management – Ratios & Concepts

Portfolio Management – This weighs 5% but is tested again in L-2 and L-3. In L-2, the first Chapter in
PM is whole syllabus of L-1 PM, so it’s a bonus to know this well.

This section seems difficult due to the new terminology, but isn’t very difficult. Understand the
CAL/SML, Efficient Frontier, Risk (Unsystematic v/s Systematic), Portfolio diversification, Standard
Deviation and Assumptions of Prof. Markowitz. Know the formulae well.

Equity – An easy section, but needs a little time to understand it. At 8% of weightage, this section has
a lot of easy questions on Types of Markets, Indices and Arbitrage. EMH is a favourite topic and expect
something on Margin calls while going long and Short. A couple of readings will help you master this.

In SS14, DDM & Relative Valuation will be tested and is easy. Know the advantages and disadvantages
of each ratio well.

Fixed Income – This is one of the most interesting topics in the L-1 syllabus. This section is easy
initially and deepens as you progress.

Duration and Convexity are a bit complicated and you need to apply some effort to understand. Spot
rates, Implied Forward Rate, Z-Spread & Option Adjusted Spread will have some questions. Bond
Equivalent Yield is important stuff, expect some questions on that. Know Duration, Convexity and their
advantages & disadvantages. Convexity of bonds with Options, Duration & PVBP would be tested.

Don’t get the basics in this section wrong. My PM paper was tougher, but I remember that FI questions
took up a lot of time compared to the AM. This section can get complicated and time consuming.

Derivatives – This is an easy & scoring section. This section had an even mix of number crunching
and conceptual stuff. Margin calls and Payoffs are an important part. Put Call Parity is important,
should have 2-3 questions based on it. Swap payoffs can get complicated, so be ready. Risk
Management strategies are easy and will be tested.

Alternative Investments – This section seemed complicated to study, but I think the questions were
mostly formula based and straightforward. Valuation of Real Estate is the relatively toughest part of AI.
ETFs and its properties, VC investments, Commodity Investments are easy. Contango and
Backwardation should be tested.

My three essentials for studying

• Start Early – Nothing better than to start early. It allows you to read the syllabus a
couple of times. I finished my learning of the syllabus by May 20th. The next few days
were dedicated to practise papers. The last 4 days of my exam were spent relaxing,
reading only Secret Sauce and light revision of grey areas. In my opinion, there’s no point
in trying to cram in stuff at the last moment, it confuses ( atleast me) further.
• Practise & Hard work – As they say, ‘Practise makes a man Perfect.’ Keep practising
from Schweser books, Q.Bank, CFAI material and the Mock papers (that was my order of
practise). Try to recreated the feel of an exam by writing exams with specified time limits.
• Positive attitude – There’s no substitute for it. It’s good to visualise the happiness
that you and your loved ones will feel on your passing the exam. That’s what I did 2
months prior to the exam. Once you visualise your goal and the outcome of passing the
CFA exam, you will do wonders.

Having said a lot, this is the final section of this long post contains a lot of random stuff of the most
important things for the CFA exam. This part gives the big picture view of the paper.

• If I classify the easy scoring, medium and the tough sections, I would do as follow

Easy – Economics, Equity, Corporate Finance, Alternative Investments

Medium –PM, FI, Derivatives, Quant (only due HT, otherwise an easy section)

Tough – Ethics, FRA (due to SS9, otherwise in Medium)

The classification can differ based on your educational qualifications, but take the above as a
generalist view.

• Focus on the big picture. You may decide not do a chapter because it dodges your
understanding, but I suggest you to concentrate on the larger view i.e. know the bare
basics that will help you eliminate 1 of 3 choices.
• Do not mess up heavyweights, especially Financial Reporting and Analysis. FRA +
Ethics = 35%. Ethics is a potentially grey area and throws up a surprise to almost every
CFA candidate. Better not get these heavyweights wrong. You mess up FRA, Ethics and
another one or two sections and you are doomed for the next 6 months and $710.
• You can probably skip a chapter or two, but as I mentioned earlier; focus on getting the
big picture right. Know enough of the skipped chapters so that you can strike down
atleast one choice as incorrect.
 • The exam is more conceptual than numerical. I think I used my calculator for about 20
minutes out of 360. SO get the concepts and basic right
• Either of the Paper will be tougher than the other. So expect surprises and don’t mess
up due to your own hubris.
• Schweser Test papers are tougher and more quantitative than the actual paper. The
CFAI mock paper (Not the sample paper) is very close to what you the actual paper feels
like.

Thank